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When tariffs dominate the headlines, a reasonable person might expect grocery bills, car prices, and utility costs to surge in lockstep. The news coverage certainly implies as much. But the actual research tells a more complicated, and in some ways more reassuring, story — at least at the aggregate level. The real action is happening sector by sector, not across the entire economy. And to discuss inflation through mid-2026 without accounting for the sweeping tariff regime of Trump's second term would be to miss the dominant policy story of the past 18 months.
Understanding where prices stand today requires tracing three distinct waves of trade policy.
The US has maintained tariffs on more than $300 billion of Chinese goods since the 2018–2019 trade war, covering everything from clothing and toys to industrial machinery and routers, at rates generally between 7.5% and 25%. Those measures survived two changes of administration.
Then, in 2024, the Biden administration layered on a targeted second round: electric vehicle tariffs jumped from roughly 27.5% to about 102.5% all-in, solar cell duties rose from 25% to 50%, semiconductor tariffs were set to double to 50% by 2025, and lithium-ion EV battery tariffs moved from 7.5% to 25%. These newer measures covered approximately $18 billion of imports — a small slice of total trade.
The third and most consequential wave arrived in early 2025. From January to April 2025, the overall average effective US tariff rate rose from 2.5% to an estimated 27% — the highest level in over a century. At its peak, China faced a minimum tariff rate of 145% on all imports to the United States, comprising a 125% reciprocal tariff layered on top of a pre-existing 20% fentanyl-related levy. In May 2025, after a brief but turbulent trade war, the US and China agreed to a 90-day truce, dropping the China-specific rate by 115 percentage points to 30%, while China lowered its rate on US goods to 10%.
The picture shifted again in February 2026, when the Supreme Court ruled 6–3 in Learning Resources, Inc. v. Trump that the International Emergency Economic Powers Act (IEEPA) does not authorize the President to impose tariffs, invalidating the legal basis for the 2025 tariff architecture. Within hours, the administration issued a new executive order imposing a 10% global tariff on goods from all countries under Section 122 of the Trade Act of 1974 for 150 days — effective February 24, 2026 — while restructuring Section 232 metal tariffs. By April 2026, the overall average effective tariff rate stood at approximately 11.8%, with steel and aluminum tariffs restructured to impose flat 50% duties on articles made almost entirely of those metals and 25% on derivative articles. Brookings estimates the trade-weighted average tariff rate at roughly 11.1% as of April 2026, still the highest since at least the early post-war era.
Less than the most alarming headlines might suggest — but considerably more than the pre-2025 baseline. At the macro level, the HBS Pricing Lab's high-frequency retail data found that prices on imported goods rose roughly 4.0% between March and September 2025, while domestic goods rose 2.0%. Relative to pre-tariff trends, this added approximately 0.7 percentage points to the all-items CPI by September 2025. The Federal Reserve Bank of St. Louis found that over June through August 2025, tariffs explained roughly 0.5 percentage points of headline PCE annualized inflation, accounting for around 11% of total headline price growth over the prior 12 months. These were real but still moderate effects.
The Conversable Economist's synthesis of the data through December 2025 offers a useful frame: with imports representing roughly 14% of the US economy and an average effective tariff rate of approximately 10% (after exemptions, delays, and rollbacks), the pass-through to consumer prices would be expected to be around 1.4 percentage points. The evidence broadly confirms that figure. Harvard Kennedy School economists studying the 2025 tariffs found that pass-through to US import prices was nearly 100%, meaning the United States bore a large share of the cost, though shipping lags, exemptions, and enforcement gaps kept actual implemented rates at roughly half of statutory rates, moderating the impact. The Yale Budget Lab calculated that, by January 2026, the 2025–2026 tariff regime had already implied an increase in consumer prices of 1.3% in the short run, equivalent to a loss of approximately $1,751 per household per year in 2025 dollars. By April 2026, following the Section 122 replacement tariffs, that figure had moderated to approximately 1.1%, or about $1,500 per household.
The overall CPI rose to 2.7% year-over-year through December 2025. Importantly, the Conversable Economist's analysis suggests that without Trump's tariff regime, measured inflation would likely have been below the Fed's 2% target — a striking counterfactual. By May 2026, CPI had reached 4.2% year-over-year, driven partly by energy price pressures from the Middle East conflict (another Trump factor) but with tariff-driven goods price inflation as a persistent contributing factor.
One of the more important findings for forward-looking analysis is how slowly tariff costs have moved from border to consumer. Businesses initially absorbed costs by drawing down pre-tariff inventories, compressing margins, and avoiding the perception of sharp price hikes. This lag, however, has been narrowing.
The Federal Reserve Board estimated in March 2026 that consumer price inflation for Chinese imported goods diverged sharply in early 2025, coinciding with the new tariff announcements. The HBS Pricing Lab found that prices rose quickly after each tariff announcement in 2025 and then gradually stabilized through February 2026, with US consumers ultimately absorbing up to 43% of the tariff burden after the first seven months — the remainder borne by US firms and foreign exporters. HBS Professor Alberto Cavallo noted that "most of the pass-through has likely already occurred, assuming tariffs do not increase further," pointing to the rollback of some tariffs as a stabilizing factor.
The Peterson Institute for International Economics (PIIE) takes a less sanguine view of what lies ahead. Writing in January 2026, PIIE argued that the delayed pass-through was set to accelerate materially in the first half of 2026 as businesses depleted their pre-tariff stockpiles and incrementally raised prices. PIIE projected this could add 50 basis points to headline inflation by mid-year, and cited the interaction of lagged tariff pass-through, tighter labor supply from immigration policy changes, looser fiscal policy, and deteriorating household inflation expectations as conditions that could push inflation above 4% by end-2026. The May 2026 CPI reading of 4.2% suggests those risks have materialized, at least partially.
A New York Fed survey found that roughly three-quarters of affected manufacturers and service firms raised prices to pass along at least some of their increased costs, while about one-quarter absorbed the hit through margin compression. A Boston Fed study from 2025 found that firms expected to pass through about half of their cost increases within 12 months.
The Equitable Growth survey of US businesses in early 2026 found broad concern about policy uncertainty, with many firms reporting they had already increased prices or had plans to do so, and that dwindling inventories were increasing the pressure to act. The bank of America Global Research noted in June 2026 that "most of the tariff-driven inflation has already played out," though it warned that supply chain pressures from the Iran conflict could yet produce another round of core goods inflation.
J.P. Morgan Asset Management estimated an average static tariff rate of 17.4% levied on imported goods as of mid-2025, compared to an average effective rate of just 2.4% in 2024 — a roughly seven-fold increase. Under conservative 50% pass-through assumptions applied three to six months after the tariffs took effect, JPMorgan estimated tariffs would add approximately 1.0 percentage point to year-over-year consumption deflator growth by the fourth quarter of 2025, with the effect sustaining through the second quarter of 2026 before fading.
Aggregate figures can obscure what is happening to specific industries. Yale Budget Lab data estimated that clothing and footwear prices rose roughly 14–15% in the short run due to tariffs, with shoe prices expected to remain 19% above pre-tariff levels in the long run. Motor vehicle prices face increases of over 9% in the short term. The Cox Automotive team projected average new vehicle prices to break $50,000 in 2025, and estimated the US auto industry had accumulated more than $25 billion in tariff obligations through the first seven months of the year on imported vehicles alone, equivalent to roughly $5,200 per imported vehicle at the border.
Steel and aluminum markets tell the story of tariffs as industrial policy as much as consumer price drivers. After Trump doubled Section 232 steel and aluminum tariffs from 25% to 50% in June 2025, US producers reported record shipments and domestic steel prices rose more than 20% year-over-year, with some measures showing gains of nearly 40%. For businesses relying on those inputs — from can manufacturers to construction firms to appliance makers — the cost impact has been considerably more pronounced than broad CPI numbers imply.
In EVs and batteries, tariff walls that exceed 100% on Chinese vehicles (under Biden's 2024 measures, preserved and supplemented by the Trump administration) are redirecting investment toward domestic and non-Chinese supply chains. In solar, semiconductors, and critical minerals, the strategic dimension of tariff policy is interacting with domestic subsidy programs — including the US Inflation Reduction Act — and geopolitical reorientation of supply chains, following Trump's November 2025 Korea deal with China, which secured Chinese suspension of rare earth export controls and retaliatory tariffs on US agricultural goods in exchange for partial tariff relief.
The aggregate effects, while real, have stopped short of the economic calamity some forecasters feared when tariffs peaked at 145% on Chinese goods. US GDP grew 4.4% in the third quarter of 2025 — its fastest pace in two years — partly reflecting consumer frontloading of purchases ahead of tariff increases. The IMF, revising its outlook in October 2025, upgraded US GDP projections to 2.0% for the year while noting that "inflation has increased modestly and is proving more persistent".
The Federal Reserve Bank of New York found that nearly 90% of the overall tariff burden in the first eight months of 2025 fell on US importers and consumers rather than foreign exporters — a finding consistent with the high pass-through estimates from Harvard Kennedy School. Goldman Sachs economists projected that the current tariff regime would raise core PCE inflation to an annualized rate of 3.2% by end-2025, compared with just 2.4% without tariffs — a 0.8-percentage-point tariff contribution to core inflation. Goldman also projected the tariff's impact on inflation would be "sustained through the second quarter of 2026" before fading.
The Yale Budget Lab's most recent tally estimated that the 2025 tariffs had raised approximately $214.7 billion in inflation-equivalent consumer burden through early 2026, and that the annual welfare loss to the median household stood at roughly $1,400 in 2025 dollars, with lower-income households bearing a disproportionately heavy share since they rely more heavily on imported consumer goods.[^30][^1]
History offers useful grounding. The US has used sector-specific trade barriers before — voluntary export restraints on Japanese autos in the 1980s, steel safeguards in 2002, and the 2018–2019 China tariffs of Trump's first term — and the targeted industries did eventually adjust, rarely without cost. The research on the 2018 wave found that US consumers were bearing about 70% of the tariff burden by end-2019, with US firms absorbing roughly 22% through margin compression.
The current episode differs in magnitude and legal complexity. The average effective tariff rate rose from 2.5% in January 2025 to a peak approaching 27% by April 2025, before settling at roughly 11–13% by early 2026 following the US-China truce, the Supreme Court's IEEPA ruling, and the Section 122 replacement regime. The legal volatility itself — with major tariff instruments struck down and replaced within days — has imposed its own economic cost in the form of business uncertainty, planning disruption, and supply chain reconfigurations that may persist long after specific tariff rates are resolved.
The point here is not that tariffs are painless. It is that the pain is uneven — and that the full inflationary story of Trump's second-term trade policy is now substantially, though not entirely, in the data.
For most of the economy, the aggregate price effect has been measured in roughly 1 to 1.5 percentage points of additional consumer price inflation through mid-2026, which is meaningful but not the headline-grabbing surge that early worst-case scenarios projected. For companies and workers directly inside the most-affected sectors — autos, steel and aluminum, apparel, footwear, and Chinese-origin consumer goods — the numbers are considerably more significant, with price increases in the double-digit range in some categories.
The critical forward-looking question is whether the tariff impact on inflation is now largely absorbed into baseline prices, as Bank of America and HBS's Cavallo suggest, or whether lagged pass-through effects and broader structural inflationary pressures — fiscal expansion, labor supply constraints, dollar depreciation — will push inflation materially higher in the second half of 2026, as PIIE and some other forecasters warned. The May 2026 CPI reading of 4.2% suggests the answer is not yet settled. Understanding the difference between those two possibilities is what separates a considered long-term investment perspective from a reaction to the most alarming headline of the week.
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